Question

Benson Pharmaceuticals uses a process-costing system to compute the unit costs of the over-the-counter cold remedies that it produces. It has three departments: Picking, Encapsulating, and Bottling. In Picking, the ingredients for the cold capsules are measured, sifted, and blended. The mix is transferred out in litre containers. The encapsulating department takes the powdered mix and places it in capsules. One litre of powdered mix converts into 1,500 capsules. After the capsules are filled and polished, they are transferred to Bottling, where they are placed in bottles that are then affixed with a safety seal, lid, and label. Each bottle receives 50 capsules. During March, the following results are available for the first two departments: Picking Encapsulating Beginning inventories: Physical units 10 litres 4,000 Costs: Materials $252 $32 Labour $282 $20 Overhead ? ? Transferred in - $140 Current production: Transferred out 140 litres 208,000 Ending inventory 20 litres 6,000 Costs: Materials $3,636 $1,573 Transferred in Labour $4,618 $1,944 Overhead ? ? Percentage of completion: Beginning inventory 40% 50% Ending inventory 50% 40% Overhead in both departments is applied as a percentage of direct labour costs. In the picking department, overhead is 200 percent of direct labour. In the encapsulating department, the overhead rate is 150 percent of direct labour. Required:

1. Prepare a production report for the picking department using the weighted average method. Follow the five steps outlined in the chapter. Round to two decimal places for the unit cost.

2 Prepare a production report for the encapsulating department using the weighed average method Follow the five steps outlined in the chapter. Round to four decimal places for the unit cost.

3 Explain why the weighted average method is easier to use than FIFO Explain when weighted average will give about the same results as FIFO.

Answer 1

Solution 1:
Reconciliation of Physical units - Mixing
Particulars	Physical Units	Particulars	Physical Units
Beginning units	10	Unit Completed	140
Unit started	150	Ending Units	20
Total Units	160	Total Units	160
Computation of Equivalent unit of Production - Weighted Average (Mixing Department)
Particulars	Physical Units	Material	Conversion (Labor + Overhead)
Unit completed & Transferred out	140	140	140
Closing WIP:	20
Material (50%)		10
Conversion (50%)			10
Equivalent units of production	160	150	150
Computation of Cost per equivalent unit of Production - Weighted Average (Mixing Department)
Particulars	Material	Conversion (Labor + Overhead) (Direct labor * 300%)
Opening WIP	$252.00	$846.00
Cost Added during March	$3,636.00	$13,854.00
Total cost to be accounted for	$3,888.00	$14,700.00
Equivalent units of production	150	150
Cost per Equivalent unit	$25.92	$98.00
Computation of Cost of ending WIP and units completed & transferred out - Weighted Average (Mixing Department)
Particulars	Material	Conversion (Labor + Overhead)	Total
Equivalent unit of Ending WIP	10	10
Cost per equivalent unit	$25.92	$98.00
Cost of Ending WIP (Equivalent unit * Cost per equivalent unit)	$259	$980	$1,239
Units completed and transferred	140	140
Cost of units completed & Transferred (Unit completed * cost per equivalent unit)	$3,629	$13,720	$17,349
Total cost accounted for			$18,588
Solution 2:
Reconciliation of Physical units - Encapsulating
Particulars	Physical Units	Particulars	Physical Units
Beginning units	4000	Unit Completed	208000
Unit started	210000	Ending Units	6000
Total Units	214000	Total Units	214000
Computation of Equivalent unit of Production - Encapsulating Department
Particulars	Physical Units	Transferred in cost	Material	Conversion
Unit completed & Transferred out	208000	208000	208000	208000
Closing WIP:	6000
Prior deparment cost (100%)		6000
Material (100%)			6000
Conversion (40%)				2400
Equivalent units of production	214000	214000	214000	210400
Computation of Cost per equivalent unit of Production - Encapsulating Department
Particulars	Transferred in cost	Material	Conversion (Labor + Overhead) (Direct labor * 250%)
Opening WIP	$140.00	$32.00	$50.00
Cost Added during March	$17,349.00	$1,573.00	$4,860.00
Total cost to be accounted for	$17,489.00	$1,605.00	$4,910.00
Equivalent units of production	214000	214000	210400
Cost per Equivalent unit	$0.0817	$0.0075	$0.0233
to 4 places of decimal
Computation of Cost of ending WIP and units completed & transferred out - Encapsulating Department
Particulars	Prior Department Cost	Material	Conversion	Total
Equivalent unit of Ending WIP	6000	6000	2400
Cost per equivalent unit	$0.0817	$0.0075	$0.0233
Cost of Ending WIP (Equivalent unit * Cost per equivalent unit)	$490.2	$45	$55.92	$591.12
Units completed and transferred	208000	208000	208000
Cost of units completed & Transferred (Unit completed * cost per equivalent unit)	$16,993.6	$1,560	$4,846.4	$23,400
Total cost accounted for Solution 3: Weighted average method is easier to use because, in FIFO we have to consider equiavalent unit for opening WIP not completed and same is considered as completed during the period. However in FIFO begining WIP is considered to 100% completed. Weighted average will give same result as FIFO when there is no beginning inventory or when cost per equivalant unit previous period is same as cost per equivalant unit in current period.				$23,991.12